Tech CFOs See Lower Valuations But More Deals

Forty percent of CFOs surveyed by BDO plan to pursue deals in 2016 and nearly all see M&A activity at least matching last year's record pace.

Most technology CFOs expect tech business valuations to cool off this year but nearly all of them anticipate M&A activity will match or surpass 2015’s record pace, according to a new survey.

BDO USA’s annual poll of 100 tech CFOs found that 48% expect valuations to increase in 2016, down from 62% last year when an unprecedented 147 privately held companies exceeded the $1 billion threshold.

Also pointing to a more measured year ahead, less than half (46%) of tech CFOs expect to see an uptick in IPO activity this year, down from 52% of respondents last year. U.S. market volatility was cited as the greatest influence on IPO activity by 26% of the sample, closely followed by global political and economic issues (25%).

But on the more positive side, 74% anticipate higher total revenues in 2016, projecting, on average, an increase of 8.8% over last year, and appetite for M&A remains strong on the heels of a record year for tech deal-making, with deal value in 2015 reaching $713.1 billion.

Forty percent of surveyed CFOs have plans to pursue deals in 2016, while 96% anticipate M&A activity in the sector will stay the same or increase this year and 72% predict acquisitions will be primarily offensive.

“Investor sentiment toward the technology industry has soured in recent months as a number of IPOs have failed to perform and technology stocks took a hit,” Aftab Jamil, leader of the technology and life sciences practice at BDO, said in a news release. “However, the chilly IPO environment and share price declines don’t necessarily tell the full story. Finance chiefs are bullish about their company revenues as well as their M&A prospects.” Or at least they were in the December 2015 to January 2016 period, when the survey was conducted.

Jamil said, “Disruption in consumer tech along with data analytics, cyber, cloud computing and the burgeoning Internet of Things market will create opportunities for further growth in 2016.”

In line with last year’s outlook, the BDO survey found that 59% of tech CFOs believe software, including cloud computing, will generate the most deal activity in 2016. The number of software deals increased by 9% in 2015 and total value rose by 72% to $213.2 billion. Source: CFO.